Copyright Notice

Everything that appears on this blog is the copyrighted property of somebody. Often, but not always, that somebody is me. For things that are not mine, I either have obtained permission, or claim fair use. Feel free to quote me, but attribute, please. My photos and poetry are dear to my heart, and may not be used without permission. Ditto, my other intellectual property, such as charts and graphs. I'm probably willing to share. Let's talk. Violators will be damned for all eternity to the circle of hell populated by Rosanne Barr, Mrs Miller [look her up], and trombonists who are unable play in tune. You cannot possibly imagine the agony. If you have a question, email me: jazzbumpa@gmail.com. I'll answer when I feel like it. Cheers!

Thursday, June 9, 2011

Where has all the Money Gone, Part 1.5 - A Closer Look at Corporate Profits

If you look at the % change, quarter over quarter in corporate profits since 1947, you get this.

Confusing - no? One might be tempted to see it as chaotic, random, formless, or a lot of fury signifying nothing. Let's do what I've done with percent change in GDP data so many time and try to find whatever order may be lurking in the chaos. The visual problem here is that the size and number of the spikes disguises whatever underlying pattern might exist. One way to simplify is to take a moving average.

This chart is rescaled and has the same data in the background, but zeroes in on the 21 period moving average.

Now we have something we can make sense of. The straight blue line is the best fit. The green line is one I constructed connecting the first and last peaks. (I'm always amazed by the amount of respect lines like this receive from presumably random data.)

We see -
1) A positively sloping trend line.
2) Steadily increasing peaks.
3) An essentially level series of bottoms, at the 0.00 line.

All of this is consistent with my assertion that the most recent decade has been a remarkable profit generator. Not the best decade in the entire data set, though. Quite surprisingly, that honor falls to the 70's! The two most moribund decades since the Great Depression account for the greatest growth rates in corporate profits. Make of that what you will.

4) The peak to peak period is not constant. In fact, it seems to be increasing quite regularly. I'll have a closer look at that when I have more time. For now, it's just an oddity.

The increasing slopes over time we saw here really do mean something. There are trees in the forest and a careful observed can identify them..

Agreed: The apparent randomness in your first graph is not evidence of actual randomness. And your second graph shows it.

As an aside, I really like that second graph.The blue-on-gray makes the plotted line stand out, and the faint image from your first graph there in the background ties the two together and emphasizes your reason for making the second graph.

Glad you pointed out the 1970s-was-best thing. The area under that part of your 21-period line looks to be twice the size of the area under the 2000s part. (And this is how I get in trouble: by eyeballing things, as opposed to doing another graph of them as you are doing here. Hmm.)

Perhaps the 1970s performance is related to the high inflation of those years? (Mark's graph shows a much smaller 1970s, after adjustment for inflation among other things.)

You often observe a change in trend around 1980. Putting one continuous trend line on the graph tramples your observation. Showing two trend-lines here (before & after 1980) might show a saw-tooth pattern... But then, how would we justify interrupting the trend line at that particular point?

If you want to do the trendline analysis right, I think you might need to start and end at the same point in a cycle. Otherwise wouldn't you get a trend bias just from the above-trend or below-trend portion of the last segment?

There are two ways I know to do trend lines, and I did them both here. One is a best fit, which hives you a slope. The other is to connect the tops and/or bottoms. This is the way trend channels are defined. Connecting tops, frex, does give you he same point in each cycle, it that's what you meant.

I didn't bother with a bottom line, since the y-axis provides that quite nicely.

Change in Plans No. 2. Stock Market Musings are now located at Amateur Elliott

WELCOME READERS

Disclaimer

Do I need to point out that I am not a financial adviser, registered stock analyst, or anything other than a guy playing with ideas for his own amusement?

Get your own data, do your own thinking, make your own decisions. I am not telling anybody to do anything with even a single penny of their assets. Happy Speculating!

Gold - via www.kitco.com

Change in Plans

Starting Sunday, Feb. 6, 2010, light-hearted stuff has been moved to a new blog. If you are meant to find it, you probably will. If you need directions, write me.

Meanwhile the heavy-hearted - and heavy-handed stuff stays here.

Cheers!JzB

Rules of Engagement

Over at Angry Bear, Mike Kimel has posted a list of things to think about, if you want to be taken seriously. It might be worth your time to check it out. A few are specific to his situation, most are not.

Examples:#1 Don't cite authority as proof.#2 Get your data from a reputable source.#7 Do not argue by assertion.#15 Time moves in a single direction.